Question

Super Carpeting Inc. (SCI) just paid a dividend (D₀) of $2.88 per share, and its annual dividend is expected to grow at a constant rate (g) of 6.00% per year. If the required return (rs) on SCI’s stock is 15.00%, then the intrinsic value of SCI’s shares is per share

Answer 1

Intrinsic value will be equal to $33.92

Step-by-step explanation:

We have given dividend
`D_0=2.88per\ share`

Growth rate = 6 5 = 0.06

So expected dividend in the next year
`D_1=D_0(1+g)=2.88(1+0.06)=$3.05`

Required rate of return
`R_e=15%=0.15`

We have to find the intrinsic value
`p_0`

Intrinsic value will be equal to
`p_0=(D_1)/(R_e-g)=(3.05)/(0.15-0.06)=$33.92`

So intrinsic value will be equal to $33.92